Healthcare Business News

CBO projects less growth in healthcare spending

By Modern Healthcare staff
Posted: May 15, 2013 - 6:30 am ET

Noting the society-wide slowdown in healthcare spending, Congressional Budget Office analysts on Tuesday sharply lowered their projections for the next decade's outlays on Medicare, Medicaid and covering the uninsured under the healthcare reform law.

The changes – sure to be welcomed by the White House and healthcare reformers – helped lower the CBO's overall projections for the government deficit by $618 billion through 2023 compared with estimates offered just three months ago.

“During the past several years, healthcare spending has grown much more slowly both nationally and for federal programs than it did historically and more slowly than CBO had projected,” the report said. “As a result, in 2012, federal spending for Medicare and Medicaid was about 5% below the amount that CBO had estimated in March 2010.”

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The latest estimate comes just three months after a February estimate that showed spending on Medicare at a whopping $8.07 trillion between 2014 and 2023. That figure is now nearly $85 billion less at $7.94 trillion. Projections for federal spending on Medicaid also fell, slipping $77 billion to $4.283 trillion.

And in the closely watched estimates for the Patient Protection and Affordable Care Act, net spending fell by $74 billion over the 10-year period. However, the net impact on the budget deficit increased by $40 billion because tax penalties on employers and individuals for failing to obtain health insurance coverage are slated to fall sharply. The so-called Cadillac tax, which will be imposed on high-cost insurance plans starting in 2018, also will fall sharply because of the moderation in health care costs – and therefore insurance premiums – projected by the report.

“We now expect fewer employment-based plans to be subject to the excise tax on high-premium paid by employers,” CBO analysts said in a blog post on the agency website. “Consequently, we have reduced our estimate of revenues from that tax by $58 billion over the 10-year period.”

The projected reductions in outlays for healthcare are also contributing to the short-run reduction in the deficit. CBO now projects the deficit for the fiscal year that ends on Sept. 30 will fall to $642 billion, down from the projected $845 billion deficit just three months ago.

The latest CBO projections are likely to add fuel to the growing debate in Washington that the budget-cutting austerity policies imposed by Republicans on Capitol Hill have become a major drag on economic growth and are unnecessarily prolonging the long-term unemployment crisis. It also will give ammunition to healthcare providers who have been fighting a largely losing battle to fend off round after round of budget cuts to public programs like Medicare and Medicaid.

The latest report won't be good news for opponents of the healthcare reform law. CBO projects two million fewer people will get insurance in part because of a recent change in administration policy that will exempt anywhere from 500,000 to 1 million people from the individual mandate provision in the law.

As a result, CBO projects uninsured individuals will pay $7 billion less in fines over the next ten years (now $45 billion in total) because they fail to buy insurance compared with its February projection. Employers subjected to a similar penalty for failing to provide coverage to employees will only pay $140 billion in fines over the next decade, down $10 billion from the February estimate.

However, the reduction in the number of people obtaining insurance in the private sector will be partially offset by a growth in some public programs, according to CBO. Medicaid and the Children's Health Insurance Program are now slated to grow by 13 million over the next decade instead of the 12 million estimated previously. “That increase in projected enrollment stems primarily from our expectation that more potentially newly eligible Medicaid beneficiaries will be residents of states that fully extend Medicaid coverage under the ACA,” the CBO analysts wrote.

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